Thanks for the advice guys.
High speed steels are alloys containing various amounts of tungsten, cobalt, manganese, vanadium, chromium, and other hard metals to make tools that will cut at high rotational and feed rates while remaining sharp. Some of them retain their hardness capabilities while running dull red heat, for instance. When drilling or machining hardened or work hardening steel, it's necessary to have a tool that remains harder than the material you are working -- just like trying to sharpen a RC 62 knife with a file, which is very likely softer than the knife, not gonna work well. HSS tools do not lose their hardness at the heat generated by the friction of the drill bit spinning on hard steel, unlike carbon steel bits, which then immediately become quite dull. From the looks of the chip, it appears that the steel in the knife blade as reached at least blue temperature, and likely somewhat higher. Bye bye carbon steel drill bit!
HSS drill bits are much cheaper now than they were some years ago, and are readily available. Carbon steel (blue) bits won't drill hardened knife steel well at all, they won't keep an edge long enough to get all the way through.
I'm a fan of step bits although not sure if this is the best for the application. Also a bit of cutting oil will help. I mainly work with mild steel though.
**Update: After taking everyone's advice into consideration, I had to go out and make a purchase that I knew would solve the problem. I purchased a tool that would handle the stress and pressure's of doing things the hard way.
All jokes aside, I switched to a non-carbon drill bit (@psfred) and went at it with copious amounts of WD40 and steady hands.
I was able to save the lanyard loop! Thanks everyone!
Pete, I tried to PM you and it said that you need to clear some space.
I deleted a few PM's so I should have room now.