Mix water and milk together and heat to 105˚ F to 110˚ F. Add yeast packet and set aside.
In the bowl of a stand mixer with the dough hook attachment, combine the bread flour, sugar and salt. Next, add the yeast mixture and softened cream cheese and mix well until the dough comes together. Add the diced cheese and jalapeños. Once a dough ball forms, knead the dough for 3 to 5 minutes on medium speed.
Transfer the dough to a lightly greased bowl, cover and let proof for an hour or until doubled in size.
Once the hour is up, punch down the dough and move it to a lightly oiled countertop. Shape the dough into a log, approximately 10 inches long.
Place the log in a lightly greased large loaf pan, cover and let it rise for 30 - 45 minutes, depending on the warmth of your kitchen. Start preheating the oven to 350˚ F toward the end of the rise.
Bake the bread for 60 to 65 minutes. 15 minutes before the bake is finished, remove the loaf and sprinkle shredded cheddar on top, then return to oven. Measure the interior temperature of the loaf with a digital thermometer. The bread is done when it registers between 190˚ and 200˚ F.
Remove from the oven and cool on a rack for 5 to 10 minutes. Carefully remove bread from loaf pan and place on the rack to cool. And while it may be difficult to wait, let the loaf cool completely before slicing.
