Which bond is tied to compensating for defalcations in securities investments?

The blue sky bond specifically serves as a safeguard for investors in the realm of securities transactions. This type of bond is required when a broker-dealer or investment adviser registers with a state to ensure compliance with state securities laws, often referred to as "blue sky laws." These laws are put in place to protect investors from fraudulent securities offerings and to maintain integrity in the securities market.

When it comes to defalcations—instances where funds or securities are misappropriated or mismanaged—the blue sky bond acts as a financial assurance that the investors will be compensated for losses resulting from such mishaps. This bond thus provides a layer of protection, ensuring that there’s a financial resource available should any fraud or misconduct occur, thereby upholding the trust and stability in the investment environment.

In contrast, the other options don't directly relate to compensating for defalcations in securities. For example, a supply bond typically relates to the procurement of goods and services, while an appeal bond is used in legal contexts to ensure that an appealing party can cover potential costs from an unsuccessful appeal. A lost instruments bond applies to cases involving lost financial instruments, offering protection against claims related to these specific situations but not broad securities investment defalcations.