Lost instrument bonds is a suety bond that protects the issuer (most often financial institutions) of original securities, bank drafts, checks and other financial instruments being deposited in the case that duplicates instruments are issued. It is to prevent the financial institutions from paying for the same instrument more than once.
When a financial instrument (i.e., cashier's check) is lost or stole, the financial institutions may may issue a duplicate instrument. If the lost / stolen instrument is deposited, then the issuer would have to pay those funds twice, one time for the previously lost but later recovered and deposited instrument and second time for the duplicate instrument. A lost instrument bond is put in place to ensure that if the original lost instrument gets deposited in the future, the surety company will pay to the financial institution up to the bond amount. This will protect the financial institution.
For example, say you obtained a $30,000 cashiers checks issued by your bank. By accident, the cashier check were thrown into the garbage and can't be found. In addition, let's say your bank don't know the check number of the check you misplaced. If your bank is issuing an additional check, they want be protected in case the originals are found and cashed. A lost instrument bond provides this protection