These circular patterns are common to several cultures. I would guess that with a compass-like tool, or a drill bit similar to a Forstner bit.
I have these patterns on an Afircan Lega/Wega ivory carving and a bichwa.
There is an interesting thread about these swords comparing them to some other weapons.
http://www.vikingsword.com/vb/showth...hlight=khayber
According to Artzi, mine could be from Persia / Mideast area because it has walrus grips. Here is a pciture from that thread showing a khayber with koftgari. The koftgari traces on mine could indicate it once had a blade decorated like Artzi's