Dallas-based  hedge fund Hayman Advisors is cautiously investing in mortgages and corporate bonds as a general concern over loose monetary policy emerges. Kyle Bass, the fund’s managing partner, said in an investor letter Friday that while the US appears to have avoided total systemic meltdown, major governments are still in danger of inflation and may even face competition for sovereign capital as deficits run deep. Hayman is “investing cautiously” in short-duration credit and in mortgages, according to the letter. Bass indicated in another investor letter just six months earlier the time was not yet right to invest in US mortgages. As of the October letter, mortgage bonds account for 50% of the fund’s assets. The fund is looking to invest in mortgage-backed securities (MBS) that are high in capital structure and that have “attractive” risk-adjusted yields, Bass wrote. Future house price depreciation and continued financial pressure exerted on consumers as unemployment remains high will likely continue to pressure mortgage performance. Hayman sees opportunity in certain securitizations as many traditional buyers continue to shy away from the market. Bass indicated in the letter the fund also added corporate credit positions to its investments, primarily high-yield bonds and bank loans. These positions total about 25% of Hayman’s assets under management. The firm favors both performing credits as well as distressed credits with adequate coverage. Monetary policy remains loose, however, and if it tightens and increases interest rates, Bass said sovereigns may have difficulty funding their current rates of deficit spending. “Unless a new dose of fiscal sobriety emerges around the world, central banks will have to choose at some point between the integrity of the money supply, and the borrowing needs of sovereign banks,” Bass wrote, adding Hayman is prepared for both outcomes. Write to Diana Golobay.