Which bond is designed for the protection of investors in case of defaults by securities dealers?

The correct answer is the blue sky bond. This type of bond is specifically established to protect investors from potential losses resulting from the defaults of securities dealers. Blue sky laws are regulations aimed at preventing fraudulent investment schemes, and the requirement for a blue sky bond serves as a safeguard for investors. By having this bond in place, it ensures that there are financial resources available to compensate investors if a securities dealer fails to meet their obligations.

Blue sky bonds are essential in maintaining trust within the securities market, as they add an additional layer of security for investors who may be wary of placing their funds in the hands of dealers. The nature of these bonds aligns with investor protection, which is a foundational aspect of regulatory frameworks in securities markets.

The other types of bonds listed serve different purposes. Supply bonds generally pertain to contracts for providing goods or services, probate bonds are often required in the management of estates to protect the interests of heirs and creditors, and conservation bonds relate to funding projects aimed at environmental preservation. Each of these serves a unique role and does not directly address the specific need for protection against securities dealer defaults.