Combine first 3 ingredients in a saucepan; stir well. Cook over medium low heat 5 minutes, stirring often.
Gradually add half of milk mixture to egg, stirring constantly with a whisk. Return mixture to pan. Cook over medium-low heat 5 minutes or until slightly thick, stirring constantly. Remove from heat, and add bourbon.
Combine water and cornstarch; stir well. Add to milk mixture; bring almost to a boil; cook 1 minute. Stir in nutmeg. Serve warm with bread pudding. Sprinkle with additional nutmeg, if desired.