Andriy Yermak: How Zelensky's right-hand man fell from power

Andriy Yermak, President Zelensky's powerful chief of staff, resigned hours after anti-corruption investigators raided his Kyiv home amid wider probes by Nabu and Sapo that have implicated senior officials accused of siphoning roughly $100m from energy-sector projects. The departure weakens Kyiv's political continuity as it negotiates with the US on a contentious peace proposal and faces intensified Russian strikes that recently caused an ~11-hour air raid and left over half a million without power, raising near-term sovereign and operational risks. Markets should track potential impacts on Western aid, governance reforms and investor confidence in Ukraine's emerging-market sovereign risk profile as a new delegation led by Defence Minister Rustem Umerov takes over talks.

Analysis

Market structure: Yermak's exit increases near-term political fragmentation in Kyiv, raising sovereign-credit and energy-delivery risk. Expect Ukraine sovereign spreads and short-dated Eurobond yields to reprice wider by a material amount (a 100–300bp move over weeks is plausible) as governance risk premium rises; defense contractors and European grid-equipment suppliers gain pricing power from higher defense and resilience spending.

Risk assessment: Tail risks include a governance breakdown that delays Western aid (low-probability, high-impact) or retaliatory escalations that further damage energy infrastructure; both would spike electricity/fuel prices and CDS. Time horizons split: immediate (72 hours) sees volatility in UAH, CDS and front-end bond yields; 1–3 months will reveal policy continuity; 6–18 months determines structural reform direction and capital flows.

Trade implications: Tactical moves should favor protection of Ukraine exposure (buy CDS or exit bonds), selective longs in defense ETFs and grid-equipment names, and commodity plays on European gas/energy. Use options to express convex views: 6–12 month call spreads on defense names and put spreads on Ukrainian sovereign exposure to cap cost while capturing skew.

Contrarian angles: Market may overprice systemic collapse — independent anti-corruption action could increase long-run reform credibility and unlock more Western support, normalizing spreads by 12–18 months. A disciplined re-entry strategy (staged buys on 200–400bp roll-down in spreads or confirmed tranche disbursements from Western donors) captures mispricing if reforms stick.

Key Decisions for Investors

• Within 48 hours, reduce direct Ukraine sovereign bond exposure by at least 50% of current position size; allocate proceeds to cash or short-dated USD liquidity. Simultaneously purchase 1–2 year sovereign CDS protection sized to remaining exposure (target hedge to cover 50–100% notional) to cap downside if 5y CDS widens >150–200bps.
• Establish a 2–3% portfolio long in defense through ITA (iShares U.S. Aerospace & Defense ETF) or pair LMT/RTX: buy 6–12 month call spreads roughly 10–20% OTM (debit-limited) to express asymmetric upside if Western military spending accelerates; scale in on any >10% intraday sell-off.
• Allocate 1.5–2% to European grid/resilience equipment: buy ABB (ABB) and Schneider/SIEMENS ADR exposure via 6–18 month positions (cash or covered calls). Take profits if these names run >25% or if European gas TTF declines >30% from peak winter levels.
• Short-term commodity hedge: buy 3-month bullish call spreads on natural gas (UNG or NG futures) sized at 0.5–1% portfolio to protect against winter-driven spikes; unwind if European gas front-month falls >25% from entry or if Kyiv receives a major aid tranche within 30 days.
• Set concrete re-entry triggers for Ukraine exposure: consider adding back up to 25% of reduced sovereign positions only after (a) one Western tranche disbursement is signed/paid or (b) investigators publicly close major cases within 60–90 days; target add-on if 5y CDS tightens by >200bps from peak.